The International Monetary Fund (IMF) maintains its global growth forecast at 6% for 2021, but has improved its projection for 2022 to 4.9% and advocates maintaining monetary policies that stimulate recovery, urging caution in lifting support for the economy and interpreting inflationary pressures that, it anticipates, will eventually dissolve.
In the summer update of the world economic forecast report, published this Tuesday, the organization explains that although the overall forecast for the world economy remains unchanged, there is a gap between two blocks: the first is made up of countries where the vaccination has been proceeding rapidly and smoothly, allowing us to foresee a greater normalization of activity at the end of this year, and the second is made up of states where the danger of new waves of infected and deaths threatens the recovery.
For the euro zone, the forecast is revised slightly upward, now projecting a GDP expansion of 4.61 q-o-q this year, up 0.2 percentage points (p.p.) from the previous report, and 4.31 q-o-q in 2022, up 0.5 p.p.. Thus, the advanced economies see the economy's growth forecast rising 0.5 p.p., largely due to the improvement in the pandemic situation in these countries, but also given the estimated impact of the fiscal stimulus package approved in the USA. This will remain in force until the end of 2021 and should boost the growth of the world's largest economy by another 0.3 p.p.. According to the Bretton Woods institution, the US economy should grow 7% this year and 4.9% in 2022.
Japan and the major European economies, on the other hand, are only expected to experience a stronger recovery in the second half of the year, after the need to tighten restrictions again earlier this year.
On the other hand, emerging markets had their growth revised downwards by 0.4 p.p. as a result of the "severe Covid-19 waves" that hit some of the main Southeast Asian economies, along with India. Also, the 0.3 p.p. decrease in China's growth forecast this year, as a result of the retreat in fiscal support and public investment, contributes to this result.
In the opposite direction, South America has its outlook for 2021 improved, after the pleasant surprises in terms of growth recorded in Brazil and Mexico in the first half, a situation similar to that expected for South Africa.
As for inflation, the IMF sees the indicator returning to its pre-pandemic levels in most advanced economies as early as 2022, once "transitory disturbances" are resolved, such as shortages of some intermediate goods or difficulties in hiring in various sectors.
However, central banks will play a key role in this, argues the IMF, as they will be the ones that will have to keep inflation expectations low in the face of short and medium term pressures. As such, and acknowledging the report that, for the time being, inflation expectations appear to be anchored to the targets set by monetary authorities in advanced economies, it calls for "clear communication by central banks of their interpretation of the drivers of inflation."
The IMF also projects that debts at the global level will stand at 98.8% this year, reaching 100.1% in the eurozone, while average budget deficits at the global level should amount to 8.8% and in the single currency countries 7.9%.
Incertainty remains high
The risks associated with the IMF projections remain downside to the downside, with uncertainty around the global baseline remaining "high," mainly related to the outlook for emerging markets and developing economies.
"While growth may turn out to be stronger than projected, downside risks dominate in the short term," admits the institution led by Kristalina Georgieva. However, it admits that on the other hand, global "better cooperation" around vaccines could help prevent new waves of infection and the emergence of new variants. These developments could also lead to a faster-than-expected application in accumulated household savings and greater confidence and investment spending by businesses.